Intel slows AMD's advance in server chips

Chip giant still loses overall microprocessor share to AMD

By

MattAndrejczak

SAN FRANCISCO (MarketWatch) -- Intel Corp. is reclaiming some market share for semiconductors used in data-server networks, but the chip industry's leader still lost overall share to smaller rival Advanced Micro Devices Inc. for microprocessors used in PCs and servers in 2006, an analyst said Monday.

Intel controlled 74.4% of the microprocessor market at the end of the fourth quarter, down from 76% in the prior quarter. AMD owned 25.3% of the total market, up from 23.3% a year ago, based on calculations from AG Edwards analyst David Wong, who cited preliminary data from Mercury Research.

Once again, the server market was a bright spot for Intel
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Helped by a chip offering based on a new architecture released in mid-2006, Intel, of Santa Clara, Calif., reported its second straight quarter of share gains.

It ended the year with 77.7% share, up from 76.3%. AMD
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slipped to 22.3%, down from 23.7%. Since AMD became a more formidable competitor to Intel two years ago, the server market is where AMD has won the most business.

Despite losses in the server market, AMD won market share in the desktop and laptop categories over the past three months, according to Wong.

In the desktop market, Intel had a 70.4% share, down from 72.4%. AMD had 29.1%, up from 26.6%. In the laptop market, Intel had an 80.6% share, down from 83.2%, while AMD had 19.4%, up from 16.8%, the analyst said.

While AMD has won more overall market share, it's doing so with lower average selling prices for its chips, especially for its server processors. This hurt the company's gross profit margin in the latest quarter. For the last three months of 2006, AMD said its margin fell to 40% of sales, down from 57% a year ago.

AMD, of Sunnyvale, Calif., expects the price landscape for its chips will be tough this year. In a Jan. 23 conference call, Hector Ruiz, the company's chief executive, said that pricing will be "incredibly challenging" this year, particularly through this summer.

Intel said its chip prices stabilized in the fourth quarter, after some price cuts in 2006, but it declined to forecast the direction of its chip prices for this year.

In his research report, Wong said he expects AMD's momentum to slow 2007. He explained that AMD has been helped by winning accounts at Dell Inc., the PC-maker who once exclusively dealt with Intel.

"There is the potential that AMD will continue to gain more of Dell's business, but we think that the current offerings by Intel should competitively slow any further gains by AMD in the desktop and mobile space," he wrote. Wong rates Intel shares a buy and AMD a hold.

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